Housing Market Tracker - Will Baby Boomers Save Homebuilders?

Quotes of the Day

"I am extremely confident in the future of Pulte Homes and chose this form of transaction to allow me to retain participation in any future appreciation of the shares." - William J. Pulte, founder and chairman of Pulte Homes Inc., who is selling 3.8 million shares of Pulte Homes. Pulte is the company's largest shareholder with 16.5% of the company. (LA Times, Feb. 12th)

"While we don't like to see sales prices cut as much as 50%, we believe this is the right move... Spec inventory has been stubbornly static for DHI, which prevents the company from re-establishing a normalized pricing environment in many of their markets." - Stephen East, home building analyst at Pali Capital, on DHI's weekend sales of homes at up to 50% discounts. (Big Builder Online, Feb. 11th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Standard Pacific’s Fiscal House Needs Restructuring. "Standard Pacific’s (SPF) financial problems, including the possibility it will default on its debt obligations, are worse than its share price suggests... We believe there is a very good chance that SPF will incur further covenant breaches in 2008 and will need to restructure its balance sheet to satisfy its bankers. Whether or not this restructuring occurs as part of a Chapter 11 bankruptcy reorganization, the implication for current shareholders is bearish." (Anthony Webster in Seeking Alpha, Feb. 12th)

Bellwether Interviews: Free Research Report for Hovnanian Enterprises Inc. "David Urani of Wall St. Strategies: Hovnanian (HOV) is... one of the more volatile homebuilders. It still has substantial debt on its balance sheet, and while some of the top homebuilders have been doing a great job of paying theirs off, Hovnanian borrowed a little bit more in its Q4... Hovnanian did have some respectable sales figures for its Q4 so I think the Company is very functional and once things get better it should be able to overcome its credit risk... Hovnanian should be a good long term investment, but... it may be prudent to wait for a pullback to buy." (Trading Markets, Feb. 12th)

Larry Mizel Of MDC Holdings Cashes In Stock Options. "SEC filing: Larry Mizel, chairman/CEO of homebuilder MDC Holdings Inc. (MDC), said Monday he purchased 1 million MDC shares for $26.56, or $2.8 million. The same day, Mizel sold [1 million] shares for an average price of $45, or $4.7M... The difference between the purchase and average sales price amounted to $1.9M. Mizel was given the 104,998 shares as a stock option in April 2005. The stock options were scheduled to expire on April 7, 2008... MDC lost $637M last year on revenue of $2.9 billion. That compares with a loss of $214M on revenue of $4.8B in 2006." (Denver Business Journal, Feb. 12th)

Builders' Blueprint For Closer Families. "As the oldest of the nation's 79 million baby boomers turns 62 this year... "Multigenerational" communities... build close but separate sections for active adults, families and younger couples: one-story houses and golf courses down the street from larger, single-family homes near playgrounds and schools. In the USA... multigenerational housing is particularly popular with large subdivision developers who appeal to more affluent buyers... Pulte Homes' Del Webb (PHM)... best known for its "Sun City" communities for people 55 and older, has launched "Anthem" communities for all ages in Arizona, Nevada and Colorado. It also is building parts of similar housing clusters in North Carolina and Florida." (USA Today, Feb. 12th)

Pulte Homes Warned To Fix Sewer Problems. Connecticut: "Zoning Enforcement Officer Derek Valentine sent a letter on Monday to officials at Pulte Homes of Oxford telling them that no new permits or certificates will be issued until mechanical problems with three pump stations are rectified. The PZC voted Thursday to instruct Valentine to send the letter. The PZC's action follows complaints by several residents of the over-55 housing community about sewage problems. PZC member Ed Hellauer said hearing about the problems is "unbelievable" and that Pulte should work things out before doing any new work at Oxford Greens." (Connecticut Post, Feb. 12th)

Options Under Water At 34 Pct Of Fortune 500 –Study. "Executive compensation consulting firm Steven Hall & Partners study: Tumbling share prices have left many executives, [and] rank-and-file employees at big U.S. companies, sitting on piles of stock options that are currently worthless... Stock options are "under water" -- meaning the current price of the stock has sunk below the exercise price of the options -- at 34% of the corporations in the Fortune 500... The Fortune 500 company hardest hit... was Beazer Homes USA Inc (BZH), whose share price of $7.74 was 82% below the average exercise price of the more than 2.1 million stock options currently outstanding." (Reuters, Feb. 12th)

Pulte Founder To Sell Shares. "William J. Pulte, founder and chairman of Pulte Homes Inc., [will] sell... 3.8 million shares under an accord that allows him to buy back the stock by the end of the year. In a SEC filing, Pulte said he was selling... 9% of his stock in the company to raise cash for transactions involving friends and family members. The prepaid variable forward contract allows Pulte to keep dividends and voting rights and retain an interest in possible increases in the shares' value. He can buy the shares back for cash, and the accord also provides protection against a decline." (LA Times, Feb. 12th)

Balfour Snaps Up US Firm. "The UK's biggest construction firm, Balfour Beatty, unveiled its latest bid for US expansion after buying a military housing company for $350 million (£179.3M). The move for US property firm GMH Communities Trust, which funds and manages homes for navy, army and air force personnel, strengthens Balfour's position in the fast-growing US market for public private partnership deals. The cash buy follows the company's acquisition of US construction firm Centex (CTX)- GMH's partner on several military housing projects - a year ago... GMH has around 800 staff and 15 deals with the military spanning 30,000 family homes and 42 US bases." (Press Association, Feb. 12th)

Some Doubt Developer's High-End Home Strategy. "The developer says interest is high, but a local real estate agent has his doubts about Toll's (TOL) ability to move 6,000-square-foot homes that cost more than $1 million... The luxury home builder's Montevista development is in North Phoenix... Andrew Holm, a local real estate agent... says sales generally have been slow in the area, with good home loans hard to come by. He says a listing he has in the nearby Toll development Windgate Ranch has had only one showing in 30 days. "I am curious as to how long they will hold on to their pricing strategy." (AZ Central, Feb. 12th)

Voters To Decide Fate Of Hunters Point. "In San Francisco, in June, people may be voting on competing measures that could determine the fate of one of the most economically depressed areas of the city: Bayview Hunters Point... [The] proposed June ballot measure calls for building housing, offices and possibly a new 49er stadium on a site covering Monster Park, Candlestick Point and the old Hunters Point Naval Shipyard. The Lennar Corporation (LEN) wants to be the developer and is proposing up to one-fourth of the housing they build will be for lower income residents. Supervisor Chris Daly believes that's not enough." (ABC News, Feb. 12th)

D.R. Horton Plans "Un-Auction" Sale of 399 Spec Homes in California. "D.R. Horton's management [has] pledged its commitment to reduce the 9,800 specs in standing inventory [offering] details of an aggressive "Un-Auction Sale..." Horton (DHI) is focused on Southern California, where the company's new orders plummeted by 72% last quarter. Promoting "unheard of savings" of up to 50%, the company is hoping dramatic pricing on Saturday, Feb. 16, and again on Saturday, Feb. 23, will move the 399 homes the company has carried in standing inventory for more than 12 months. Under the terms of the sale, buyers must close before the company's quarter ends on March 31." (Big Builder Online, Feb. 11th)

Builder Sells Southwest Land: Holding Acreage Too Long Can Eat Away at Bottom Line. "California: A year-end sale of southwest land formerly slated to become two Corky McMillin Cos. subdivisions may suggest some builders are looking to pare down their holdings as Bakersfield home prices tank. KRP Panama LLC bought about 230 lots... from Casa Azul Land LLC, an affiliate company of McMillin, on Dec. 28, county records show. Tom Carosella, the Bakersfield developer who formed KRP Panama with partner Joe Leal, declined to state the sale price. But he paid less than the $9.6 million county records show a McMillin company bought the land for in 2005, he said." (Big Builder Online, Feb. 9th)

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Comments

[CrossProfit_:]

Actually it is the baby boomers that might cause a longer than usual housing recession. As boomers age, they tend to sell their 3 to 4 bedroom house and buy smaller units that are more manageable. This puts more higher priced units on the market for lower priced unit replacement purchases.

In other words, the larger sq. foot units are already built and less sq. feet need to be constructed. This will start feeding into the real estate market in about three to five years from now in a big way.

CrossProfit

2008 Feb 14 01:20 PM

[Carl leason:]

In other words,...the baby boomers have learned a lesson, and have suddenly gotten smart ???,..As Forrest Gump would say, "Stupid is as stupid does ". These baby boomers and the idiot mtg. brokers are responsible for this housing "slump",...I doubt it . Way too many people, of all ages, thought of these past few years as if they would continue forever,..and there were simply no controls on mortgages ! No income verification, just stupidity ruling the past 5 years or so, right ? Then banks bundling the bad mortgages and selling them to your retirement fund, and the Gov. and everyone involved just went along !! There is so much inventory of homes on the market tht it will take years, unfortunately, for this mess to get fixed,..that's assuming , of course, the the Fed. Gov. doesn;t put us into even deeper debt, making the dollar totally worthless. But, even that has a bright side,...since we don't manufacture anything any more , the dollar has become worthless and soom we will be owned by the oil barrons of the mid-east, or Europe. LC

2008 Feb 14 11:47 PM